The $33B Question: Can Dubai Make A Success Of Expo 2020?

World Expos like to deal in big ideas. Think of it as an Olympics or a football World Cup, but with the sport stripped out and replaced by tech wizardry, with countries competing to showcase their ideas for solving global problems.

The idea dates back to the Great Exhibition in London almost 150 years ago, when the UK wanted to boast of its cultural and industrial prowess, alongside 44 other countries. These days the events are held on a grander scale, but the underlying narrative is not so different.

Next year it will be Dubai’s turn to host the event, the first time it has been held in the Middle East and marking a break from the usual run of European, North American and Asian hosts.

The Gulf city has big ambitions for the event, which it is holding under the theme of "connecting minds, creating the future". But the reality of Expos does not always match the hype.

Expo 2015 in Milan was widely seen as a flop, described by one observer as a “monumentally misplaced allocation of resources” in which the content was “as vapid as the architecture is extravagant”. These sort of events can be hard to pull off and there have been similar tales of underwhelming experiences at other large attractions dealing in big themes, such as the Millennium Dome fiasco in London at the turn of the century. But sometimes they work. Expo 2010 in Shanghai attracted a record 73 million visitors.

So will Dubai’s Expo follow in the footsteps of Shanghai’s success or Milan’s mediocrity?

The Gulf city state has a pretty good record when it comes to the “build it and they will come” philosophy. Its trade and transport infrastructure has proved extremely popular and it has established itself as the pre-eminent financial centre in the region. But not everything goes to plan. A collection of theme parks run by Dubai Parks & Resorts has had a tougher time since launching in 2016.

Dubai is leaving little to chance when it comes to drawing people to its Expo, with the event's livery painted on the outside of 40 Emirates aircraft flying around the world and footballing superstar Lionel Messi featuring in an international advertising campaign.

Such high-profile efforts are vital if Dubai is to hit its target of attracting 25 million visits to the Expo over the six months it's on, from October 2020 to April 2021. That’s around 145,000 visits for every one of the 173 days the site is open. The organisers say most visits will be by people living outside the country – they're expecting 11 million visits by people living in the UAE and 14 million from overseas visitors (most of the latter group will be tourists taking a holiday in Dubai and fitting in a visit to the Expo while they’re there).

Other than an expensive marketing campaign, what might draw all these people in remains an open question. The Expo site on the southern edge of the city will host an architect's playground of 192 national pavilions for countries from Algeria to Yemen (along with a few other thematic ones), designed by star architects such as Foster + Partners, Grimshaw Architects and Santiago Calatrava. There will also be a programme of live events every day and 200+ food outlets.

However, it is not clear what will be inside many of the pavilions. A few countries have announced their plans, such as an illuminated maze in the UK pavilion and an exploration of the role of frankincense in the Oman pavilion, but these are exceptions to the rule.

Being the Middle East, there are some political and diplomatic stories behind the exhibitors too.

Israel has said it plans to take part – another sign of the growing appetite for links between the UAE and Israel, which may not have any formal diplomatic ties but which these days are drawing closer together over their mutual distrust of Iran (Israel already has a permanent presence in the UAE via its delegation to the Abu Dhabi-headquartered International Renewable Energy Agency).

Local rival Qatar, which is locked in a bitter diplomatic standoff with the UAE and a few other countries in the region, is also expected to take part. Even Iran has indicated its interest in having a pavilion at the event.

Billboards advertising Expo 2020 on display outside the official site in Jebel Ali on September 16, 2015 in Dubai, UAE. (Photo: Francois Nel/Getty Images)

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Financial opportunity

For Dubai, hosting the Expo is about trying to bolster its reputation as an international business hub, but there are some large financial opportunities on offer too. The event will, it is hoped, provide a AED122.6bn ($33.4bn) boost to the local economy and support the equivalent of 49,700 full-time jobs a year, according to a recently published economic impact assessment by consultancy firm EY, commissioned by the Dubai authorities.

EY divided the impact into three blocks: a seven-year build-up to the Expo, the six months when the Expo is being held, and a ten-year legacy period.

The pre-Expo period is expected to deliver some AED37.7bn of gross value add (GVA) to the economy, mostly from construction activity. While the Expo is being held, a further AED22.7bn in GVA is predicted, coming predominantly from spending on hotels and hospitality and business services. Finally, as much as AED62.2bn in GVA is anticipated in the decade after the Expo ends, as the legacy infrastructure starts to pay its way.

Of the overall AED122.6bn figure, some AED53.5bn is expected to come directly as a result of spending on the event and the legacy infrastructure. The rest will come indirectly, as a result of more distant economic activity further up the supply chain and in the wider economy.

Dubai often feels like a giant building site at the best of times, but EY says that the figures it has included in its assessment come on top of what would otherwise be spent.

“It is intended to be an incremental calculation,” says Matthew Benson, EY’s leader in the Middle East and North Africa. “Things that perhaps would have happened anyway are not factored into the AED122.6bn. So this is all effectively additional.”

On the basis of EY's predictions, Dubai's ability to achieve all the potential gains hinges as much on the legacy period as the six-month fair itself.

The organisers say that 80% of the Expo's buildings and structures will be incorporated into a new business zone called District 2020, with the likes of Accenture and Siemens named as confirmed tenants. In addition, there will be an expanded Dubai Exhibition Centre (DEC).

“There are some commitments and some plans already made,” says Benson. “There are some tenants that are going to move into District 2020. There are quite clear plans around what will be done there.”

Whether the economic predictions prove accurate will depend to a large extent on how realistic some of the assumptions made by EY prove to be. Among other things, it has assumed that 90% of the event's operation expenditure and 95% of its capital expenditure is incurred in the UAE. After the main event is over, EY has assumed the DEC will attract 1.6 million visitors a year, including 1.1 million overseas visitors saying for an average of 5 days. In addition, it is assumed that all Expo 2020 assets will be sold off by the end of the fair.

The predicted economic boost from the Expo is welcome, given the sluggish performance of some parts of the Dubai economy in recent times. Indeed, spending in preparation for Expo 2020 has often been cited by economists as one of the key things keeping the Dubai economy on track in recent quarters. In a recent research note, London-based Capital Economics predicted that economic growth in Dubai should range between 3.8% and 4.5% over the next few years, helped by a boost from the Expo.

There are some important questions for the emirate’s wider economy once the spending stimulus has gone. The IMF warned in a report on May 2 that the government needed to prepare for further reforms if the momentum is not to ebb away.

“Sustaining strong growth after Expo 2020 and the fiscal stimulus will require capitalizing on new growth drivers that are decoupled from oil prices, and this in turn will require the authorities to build on their ongoing structural reform momentum,” it said.

Among the items it identified that the UAE would need to address are reducing the size of the public sector to stop it squeezing out private sector firms; reforming the labor market, strengthening the local financial markets and being more open in the sharing of information around policymaking.

One risk for Dubai is of overbuilding for the Expo, which could have a knock-on effect for the emirate’s government-related entities (GREs) and their ability to repay the large amounts of debts they owe. Capital Economics says those debts amount to $60bn, equal to 50% of Dubai’s GDP.

“The main risk to the outlook stems from long-standing debt problems,” wrote Jason Tuvey, senior emerging markets editor at Capital Economics, in a research note issued in late March. “Around half of GRE debt is due to mature between now and 2021 and we’ve warned before that the risk of overcapacity after the World Expo means that the GREs could face weaker-than-expected revenues, harming their ability to service these debts.”

Other observers have also warned about the risk of over-capacity. Credit ratings agency Moody’s warned on March 12 that loan losses at UAE banks could rise over the next 12 to 18 months as falling real estate prices and rising interest rates make life harder for borrowers. It noted that local banks have been getting increasingly involved in large real estate developments and infrastructure projects ahead of Expo 2020, with lending to these segments reaching 20% of total lending (up from 16% in 2015).

For now, though, the focus is on making a success of the Expo itself. Tickets are not due to go on sale until March next year, by which time there should be far more detail about just what there will be for visitors to see when they walk through the gates.

In the meantime, some observers are keen to avoid any direct comparison to previous world fairs.

“I'm not sure one can compare them directly,” says Benson. “Being the first Expo in this part of the world, I don't think it's necessarily appropriate to make direct comparisons. There are already well thought-out plans as to how to deal with the opportunity that follows Expo. It's a nice opportunity to have and I suppose the risk is one doesn't take the most advantage of it.”

An overview of the planned site of Expo 2020 at night in Dubai, UAE (Image courtesy of Expo 2020)

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Dominic Dudley is a freelance journalist with almost two decades' experience in reporting on business, economic and political stories in the Middle East, Africa, Asia and Europe.